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Companies Bill [Lords]

If such a requirement does not help to achieve the Bill’s objective—I do not believe that it does—we should not include it. As someone who was involved in the audit profession, I know that, in the US, a tick-box mentality prevails and has led to a proscriptive audit approach, whereas the UK’s audit approach continues to be based on the substance of transactions, and auditors judging what is true and fair. The latter is a much stronger framework and I believe that we can be satisfied with the UK corporate environment and corporate governance when compared with the position in which US corporate governance has sometimes found itself in recent years. Defining who would constitute a potential investor or customer in practical terms is such a broad concept as to be impossible to tie down meaningfully. In the case of a highly diversified company or a company that sells a wide product range, potential investors could have a variety of priorities, which they wanted to highlight in a business review, and a vastly differing range of understanding of the company. Companies with a huge product range could have so many products that almost anyone could be classed as a potential customer. That is unworkable in the context of the business review. Perhaps one of the most fundamental changes that the new clause proposes is the requirement for medium-sized companies to complete a full business review. Conservative Members believe that that would be excessively onerous, especially taken with new clause 2 and new clause 75, which deals with reporting standards and auditing the business review. The Government estimated that the operating and financial review audit would cost business £33 million. I am concerned that formalising reporting standards, as new clause 2 proposes, and requiring an audit of the business review, as new clause 75 proposes, would risk transforming the business review exercise into nothing more than a tick-box approach, whereby the quality of the substance of the business review took second place to ticking all the boxes of a reporting standard. Clause 510 provides that auditors must review whether the directors’ report is consistent with the accounts as a whole. The Bill therefore already contains a safeguard to ensure overall consistency. I am sure that hon. Members know that the Accounting Standards Board had prepared a robust reporting standard to use alongside the OFR. Once the OFR was amended and downgraded to a business review, the ASB similarly downgraded the reporting standard to a reporting statement. Nevertheless, it still provides clear best practice guidance to directors and their auditors on the expected content and quality of the report and can therefore provide some quality assurance in the business review narrative.